Skip to main content

Your car insurance could be set to increase because of a change in the law that affects the way compensation payments are made.Insurance premium rising costs

It’s a very complicated issue, but it is based around something called the ‘discount rate’ which is applied to compensation payments.

When someone who has been seriously injured in a crash is awarded their compensation, the amount they are given is currently reduced by 2.5%, based on how much interest they could receive if they invested their award settlement.

The problem is, when injured people receive this money, they are usually financially dependent on it, so they are unlikely to invest it in anything other than a very safe savings account – which means they won’t get very high rates of interest on their savings. As anyone with any savings will know, the current interest rates being offered in high street accounts are very low.

The Government has recognised the problem and stepped in to adjust the discount rate, so that it reflects the amounts that savers can actually get for their investments.

This means that compensation payments will not be adjusted down, and therefore the cost of claims will go up.

The positive side is that this is fairer for the victims of accidents who have been left with life-changing injuries.

The downside is that the average insurance premium is likely to go up – by as much as £1,000 a year for the very youngest drivers.